ECON 2213 TEST 1 QUESTIONS AND VERIFIED
ANSWERS
What is economics? - Answers - Science of making choices, how people use scarce
resources to satisfy unlimited wants, science of scarcity.
What is the difference between microeconomics and macroeconomics? - Answers -
Micro: decisions made by individual units such as consumers and firms in a single
market.
Macro: The choices and the performance of the entire economy.
What is scarcity? - Answers - Limited resources to satisfy unlimited human wants.
Scarcity exists only if wants are unsatisfied.
What are the factors of production and their rewards? - Answers - Land= all natural
resources (Rent for the use of land.)
Labor= human skills and efforts (Wages for the services of labor.)
Capital= man-made goods that produce other goods (Interest for the use of capital.)
Entrepreneurship= management of other resources (Profit[or loss] for an entrepreneur
for running a business.)
What are the differences between a capitalist and command economy? - Answers -
Capitalist= Private resources, decisions by the unregulated markets.
Command=Public resources, centralized planning by the government.
What is a mixed economy? - Answers - Private ownership of some resource and public
ownership of others. Some markets regulated by government.
What are the basic economic questions for every society? - Answers - WHAT goods
and services are to be produced?
HOW are these goods and services to be produced?
WHO will receive these goods and services?
, What do households do in a simple Circular Flow model? - Answers - Buy goods and
services, sell resources.
What do firms do in a simple Circular Flow model? - Answers - Sell goods and services,
but resources to produce.
What is opportunity cost? - Answers - Value of the next best alternative given up
What does it mean by 'there is no free lunch'? - Answers - things that appear to be free
will always have some hidden or implicit cost to someone, even if it is not the individual
receiving the benefit.
What is 'deciding on the margin'? - Answers - Decisions based on not total but
additional costs and benefits at every step.
What is meant by 'people respond to incentives'? - Answers - Changes in rewards
attract people to change decisions.
What is the difference between normative and positive statements? - Answers -
Positive= Facts and objective
Normative= Judgement and opinions, subjective.
What is Production Possibilities Frontier? - Answers - a graph that shows the
combinations of output that the economy can possibly produce given the available
factors of production and the available production technology
Which points are attainable vs. unattainable? - Answers - Points outside the curve =
unattainable/ insufficient resources.
Points inside the curve= attainable
How is opportunity cost found from a PPF? - Answers - Negative slops of PPF at every
point.
Which points are efficient vs. inefficient? - Answers - Efficient points= points on the
curve
Inefficient points= points inside the curve
Which points show unemployment vs. full employment? - Answers - Points on curve
(efficiency) show full employment.
Points inside curve (inefficiency) show unemployment.
How do we show economic growth with PPF? - Answers - Outward shift on PPF graph
ANSWERS
What is economics? - Answers - Science of making choices, how people use scarce
resources to satisfy unlimited wants, science of scarcity.
What is the difference between microeconomics and macroeconomics? - Answers -
Micro: decisions made by individual units such as consumers and firms in a single
market.
Macro: The choices and the performance of the entire economy.
What is scarcity? - Answers - Limited resources to satisfy unlimited human wants.
Scarcity exists only if wants are unsatisfied.
What are the factors of production and their rewards? - Answers - Land= all natural
resources (Rent for the use of land.)
Labor= human skills and efforts (Wages for the services of labor.)
Capital= man-made goods that produce other goods (Interest for the use of capital.)
Entrepreneurship= management of other resources (Profit[or loss] for an entrepreneur
for running a business.)
What are the differences between a capitalist and command economy? - Answers -
Capitalist= Private resources, decisions by the unregulated markets.
Command=Public resources, centralized planning by the government.
What is a mixed economy? - Answers - Private ownership of some resource and public
ownership of others. Some markets regulated by government.
What are the basic economic questions for every society? - Answers - WHAT goods
and services are to be produced?
HOW are these goods and services to be produced?
WHO will receive these goods and services?
, What do households do in a simple Circular Flow model? - Answers - Buy goods and
services, sell resources.
What do firms do in a simple Circular Flow model? - Answers - Sell goods and services,
but resources to produce.
What is opportunity cost? - Answers - Value of the next best alternative given up
What does it mean by 'there is no free lunch'? - Answers - things that appear to be free
will always have some hidden or implicit cost to someone, even if it is not the individual
receiving the benefit.
What is 'deciding on the margin'? - Answers - Decisions based on not total but
additional costs and benefits at every step.
What is meant by 'people respond to incentives'? - Answers - Changes in rewards
attract people to change decisions.
What is the difference between normative and positive statements? - Answers -
Positive= Facts and objective
Normative= Judgement and opinions, subjective.
What is Production Possibilities Frontier? - Answers - a graph that shows the
combinations of output that the economy can possibly produce given the available
factors of production and the available production technology
Which points are attainable vs. unattainable? - Answers - Points outside the curve =
unattainable/ insufficient resources.
Points inside the curve= attainable
How is opportunity cost found from a PPF? - Answers - Negative slops of PPF at every
point.
Which points are efficient vs. inefficient? - Answers - Efficient points= points on the
curve
Inefficient points= points inside the curve
Which points show unemployment vs. full employment? - Answers - Points on curve
(efficiency) show full employment.
Points inside curve (inefficiency) show unemployment.
How do we show economic growth with PPF? - Answers - Outward shift on PPF graph
